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Case Studies from the Ombudsman for Short-Term Insurance

Posted on 1 October 2015

Case Study One: Insufficient Evidence Cannot Justify the Rejection of a Claim by an Insurer

The matter dealt with an Insured, Mr R, whose insured car was stolen from the police parking lot while he was in police custody. The Insurer, Budget Insurance, rejected his claim based on the policy exclusion that they do not indemnify any claims for loss or damage as a result of illegal activities or any crime.

Mr. R was arrested for murder when his motor vehicle was stolen. According to the police, the insured’s motor vehicle was used to transport the victim and hence he was arrested for using the vehicle in the commission of a crime.

However, after further police investigation, all the charges against Mr R were dropped. Budget Insurance still however rejected the claim as they stated that unlike the State, they do not need to prove their case beyond reasonable doubt, but merely on a balance of probabilities. They were satisfied that they had sufficiently established that the vehicle was used in the commission of a crime.

The Ombudsman however disagreed stating that the withdrawal against the insured was unconditional. The insurer therefore took a decision to reject the insured’s claim at a time when no evidence was even led in a court of law. The insurer’s decision was not based on any material or reliable evidence.

The proximate cause of loss of the vehicle was the theft of the vehicle by persons unknown to the authorities.

The question is therefore whether the exclusion by Budget Insurance was relevant?

The Ombudsman stated that if the cause of the loss was theft, then the loss was not caused by illegal activities. Neither was the loss caused by the use of the insured’s property with any illegal activity. Owing to the lack of evidence, the Ombudsman recommended that the insured’s claim be paid in full, to which Budget Insurance agreed.

Even though in this case the Ombudsman found in favour of the client, it highlights that it is important that as a financial advisor, you assist your client by explaining the terms and conditions of their short-term insurance contract. Even though the alleged crime in this case was extreme, it illustrates your duty as financial advisor to ensure that your client understands that their conduct in relation to the insured item may result in a claim being rejected by an insurer. Applying the principles of Treating Customers Fairly, the clauses of a contract must be explained to a client in plain language so that they can understand what is expected of them and in what circumstances a benefit may be rejected or not pay out.

Case Study Two: Second-hand parts can be used when repairing a Vehicle

Mr B, the insured, was not satisfied with the repairs done to his vehicle by the repairer appointed by his Insurer, Standard Insurance. On further investigation, he discovered that the repairer had used second-hand parts to repair his vehicle. Standard Insurance argued that they could do so as they were essentially swapping ‘like with like’.

The Ombudsman indicated that the parts of the vehicle at the time of the loss were second–hand, even though they may have been new at the time the insured purchased the vehicle. The duty of an insurer is to place the insured in as close a position as possible after the accident as before. It was therefore agreed that new parts did not have to be used to repair the vehicle.

If new parts were used, Mr B would be placed in a better position and would have had to pay in for the betterment of his vehicle.

The Ombudsman did not fault Standard Insurance for their actions as quality parts were used which were as good as the parts which had been replaced.

If you are an advisor assisting your clients with short-term insurance claims, ensure that they understand the terms and conditions under their policy that will apply when their car is being repaired.

Making sure that representatives in your FSP are up-to-date with the products they offer clients will ensure that they are able to provide clear information to clients and that the product performs in accordance with the client’s expectations. These are required outcomes of treating customers fairly. Ongoing training to ensure that representatives have the required knowledge and skill will demonstrate your commitment to ensuring that there is a culture of treating customers fairly.

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